Mid Cap

Vaughan Nelson Investment Management, L.P.

During the fourth quarter of 2018, equity markets experienced one of the largest quarterly selloffs in market history. After decades of financial engineering, with the last nine years turbo charged by quantitative easing, the ability to fund/hold positions in risk assets can be more important to the price of an asset than the underlying asset’s fundamentals. Therefore, we believe that the size of central bank balance sheets has become as important as the level of interest rates. With global government deficits set to rise in 2019, any further decline in global liquidity will necessitate a further crowding out of liquidity available to support risk assets. This implies that multiple compression/disinflationary pressures may continue until central banks stop/reverse quantitative tightening or until markets reduce leverage sufficiently that fundamentals become more important than funding liquidity. In the near-term, we believe economic activity will likely continue to slow, which will further pressure margins and ultimately earnings growth. Although valuations have improved through 2018, they still likely do not fully reflect an earnings or economic recession in an environment where central banks and governments have minimal policy levers to fight a slowing economy.

During the quarter, the Saratoga Advantage Trust Mid Capitalization Portfolio posted negative performance.Negative relative performance was driven by stock selection, with Energy, Financials, Industrials, Consumer Discretionary, and Materials detracting the most.Also, the portfolio was underweight Consumer Staples and REITs, which both outperformed in the risk-off environment.Stock selection within Communication Services, Healthcare, and Technology contributed positively to relative returns as did an overweight to Utilities.

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Information contained herein was obtained from recognized statistical services and other sources believed to be reliable and we therefore cannot make any representation as to its completeness or accuracy. Any statements not of a factual nature constitute opinions which are subject to change without notice.